Craft Distillers

Executive Summary

The U.S. craft spirits business has increased exponentially during this decade, growing from fewer than 200 distilleries to more than 1,700, according to the industry’s trade association. The increase has been fueled by legal changes in many states that make it possible for craft distillers to sell their product directly to consumers. New York state pioneered these changes with a “farm-to-flask” law that made it relatively easy for farmers to distill and market spirits using their home-grown produce. At least 13 other states have followed suit, swayed by the potential of the craft spirits business to generate jobs and economic opportunities in agriculture, tourism and other fields. A 2017 reduction in the federal excise tax on distilled spirits also has facilitated growth. One potential obstacle startups face is the need to properly age some craft spirits, such as whiskey; this has led some new distillers to buy someone else’s product and sell it as their own, creating the potential for brand confusion.

Here are some key takeaways:

Millennials are a key target market for craft spirit producers because of their preference for unique and varied alcoholic beverages.

As the number of craft distilleries has grown, the industry’s employment footprint has increased as well, more than tripling between 2014 and 2017.

Unlike craft beer producers, craft spirits distillers are less likely to have an adversarial relationship with the bigger, established companies in their industry.

Finkle, Victoria, “With a new distillery, two women make their mark on D.C.’s craft liquor scene,” The Washington Post Magazine, June 16, 2016, https://tinyurl.com/ybkngrhp. A journalist writes about Washington’s new distilleries.

The Next Step

State Laws

Chang, Momo, “How a New California Bill Could Change the Game for Small Distilleries,” East Bay Express, May 7, 2018, https://tinyurl.com/ycrxh2d4. A bill that would allow craft distillers to sell their product directly to the public has been approved by the California State Senate Governmental Organization Committee and goes to the Senate Appropriations Committee next.

Moomaw, Graham, “Virginia distillers push ‘booze equality’ legislation to loosen state rules on liquor tasting rooms,” Richmond Times-Dispatch, Jan. 23, 2018, https://tinyurl.com/ybocympc. Craft distillers in Virginia are seeking less stringent state regulations that would allow them to manage liquor tastings more easily and to keep more of their profits.

Murphy, Erin, “Iowa distilleries are thriving under new state law,” Quad-City Times, Jan. 26, 2018, https://tinyurl.com/y8uzgkc3. Small Iowa distilleries are flourishing due to a recently enacted law allowing them to serve customers more than just sample sizes.

Whiskey

Gutierrez, Andres, “Local craft distilleries concerned over China’s tariff on bourbon,” KSHB Kansas City, July 6, 2018, https://tinyurl.com/y7ubj62x. Small craft distilleries in Missouri are worried that China’s tariff on American-made bourbon will lead to a glut in the domestic U.S. market and depress whiskey prices.

Leary, Patrick, “Central Standard Craft Distillery releasing first re-barreled spirit: bourbon finished in wine barrels,” Milwaukee Business Journal, July 20, 2018, https://tinyurl.com/y8hmgv76. To compete in an increasingly competitive market, a craft distiller is trying out new ways to produce whiskey, including re-barreling their bourbon in cabernet wine barrels.

Torres, Chris, “Seeds of new rye whiskey market are growing,” American Agriculturalist, Aug. 15, 2018, https://tinyurl.com/yb7da2o8. A craft whiskey distiller in Pennsylvania has partnered with Delaware Valley University to grow a long-forgotten strain of rye.

Organizations

Alcohol and Tobacco Tax and Trade Bureau1310 G St., N.W., Box 12, Washington, DC 20005 1-202-882-9904 https://www.ttb.gov/ A bureau of the U.S. Department of the Treasury that regulates and collects taxes on trade and imports of alcohol, tobacco, and firearms within the United States.

American Distilling Institute22752 Bayview Ave., Hayward, CA 94541 1-510-886-7418 https://distilling.site-ym.com/ Founded in 2003, the oldest and largest organization of small-batch, independently owned distillers in the United States.

Grand View Research201 Spear St. 1100, San Francisco, CA 94105 1-415-349-0058 https://www.grandviewresearch.com/ A market research and consulting company that provides research on a range of industries, including food and beverage, energy, health care and technology.

Inkwood Research169 Harrison Ave., Boston, MA 02111 1-857-302-4704 https://www.inkwoodresearch.com/ A marketing and research firm that offers trends and analysis on a number of industries.